Social Commerce platforms: The Chicken & the Egg

When you’re an unknown business, attracting new customers is often the most difficult part of the startup phase of your business. Getting your name out to the public is crucial, as is making sure you are offering something that will attract the customers in the first place. An unknown business lacks the reputation and credibility that a more established business has, which leads to a Catch 22 situation: you need customers to establish your reputation, but you need a reputation to attract customers.

This problem is compounded even further when the business venture you are setting out upon is a social commerce platform or a social marketplace. Once the business is established and reached a critical mass, this type of business is great to be in because it perpetuates itself. The more sellers and buyers (makers and consumers) you bring together successfully, the more word spreads about your platform, thus driving even more sellers and buyers to your marketplace.

How do you seed this type of business from nothing, though? This initial process is the most complicated aspect of launching a social commerce platform, and is the phase that most commonly results in failure of user-driven businesses. There are four problems that these types of businesses most often encounter.

The Mutual Baiting Challenge

A social commerce platform is a two-sided business concept, which requires a seller and a buyer as two typically distinct roles. (However in some cases e.g on Etsy frequently enough these roles are interchangeable; that is many sellers are also potential buyers.) For this business model to succeed both makers and consumers need to be drawn to the platform to meet and conduct business. Consumers will not come to a platform without a product to buy (hence the need for sellers), and makers will not list a product on the platform if there are no consumers to buy those products.
This is known as a mutual baiting challenge, because the challenge is to draw both producers and consumers to the platform so they can meet and interact through the sales channel. Sometimes, this can be referred to as a question of what came first, the chicken or the egg.

To overcome this challenge, you need to provide some sort of bait that will draw in one or both sides of the interaction. You can provide a bait to your consumers, you can provide a bait to your producers, or you can just provide a bait to whichever side is the most difficult to draw into your platform and seed it. Once you’ve attracted, or baited, one side of the interaction, that side will act as a bait for the other side to join in.

This is known as having a standalone mode, a way for a user to derive value out of your marketplace even when other users aren’t on it, yet. This is not necessarily an easy problem to solve, but it is one that must be solved if your business is to succeed. In case of a social commerce platform (especially on arts, crafts and design) I believe that If you design your platform so that makers can bring along their own consumers, this is a good strategy to seed your social platform while allowing you to concentrate just on one side of the market.

The Ghost Town Effect

If your platform has no standalone value, you must rely upon the users on your social commerce platform to create the content and products to be purchased or utilized. This type of platform starts off, essentially, as a ghost town. Visitors to the site find no activity, and thus no value, in the social commerce platform, which leads to producers failing to contribute to a system they see no consumer interest in. This becomes a vicious cycle, and the threat of the ghost town remaining a ghost town is very real. To overcome this challenge, complementary products need to be offered from the outset of the business launch.
One way to do this is to produce the complementary products yourself. This is a major driving force behind Apple’s decision to offer their own apps in the App Store; by seeding the App Store with a few apps from the outset, they drew in consumers. Once app developers saw that consumers were flocking to the App Store, they joined in the marketplace with their own apps.

Another method to overcome the ghost town process is by providing a service for makers that enables some form of interaction between the consumers and the producers. Enabling consumers to review products, for example, will prompt producers to provide products to your social marketing platform, hence allowing some amount of publicity of the value of the product.

The Double Company Syndrome

The next challenge is the double company syndrome. The budding social commerce platform requires acquiring and servicing a user base, but this is compounded by the fact that there are two distinct sets of users needed for the platform to thrive. This makes the problem of seeding the platform twice as difficult as building any other type of business.
This problem is commonly overcome by refusing to fall for the ruse of trying to attract both user bases at the same time. This can be accomplished by focusing on a producer-first model, in which producers are seeded in standalone mode or you act as a producer for your own platform. Alternatively, you can follow a consumer-first model, where you provide some form of incentive for consumers to flock to your platform.

If there is a clear incentive for producers to bring consumers onto your platform, the double company problem can be easily avoided. In this sort of a situation, your platform allows the producers to easily manage or interact with their consumers more easily, and they bring their own consumers to you for interactions and sales. YouTube and WordPress are excellent examples of this, because they provide a mechanism for producers (video makers and blog writers) to interact with their consumers (video watchers and blog readers).

Based on that, on Picklist.me we are constantly developing new marketing tools for sellers with which they could derive value even if there is no efficient number of potential buyers (yet).

Summary

For a networked business to succeed, the right producers need to be paired with the right consumers. Focusing on a particular niche that is underserved is an excellent way to do this, because you will be attracting an audience that does not already have a marketplace in which to conduct the business transactions they want to conduct. For example, launching a new book marketplace would be a difficult proposition, because Amazon already has that market cornered. On the other hand, a niche that does not already have a major player provided its marketplace could have much more likelihood for success.

Once you have seeded your platform, you can expect to reach critical mass and see the business perpetuate itself. Until you reach this point, though, you should continue to seek out new ways to attract the sellers and/or buyers to make use of your social commerce platform and share their experiences with other potential makers-sellers and/or consumers.